DISBURSEMENT FUNDING

Transcription

1 PRESENTATION TO:- The Society of Clinical Injury Lawyers DISBURSEMENT FUNDING Monday 25 th November Crowne Plaza, Birmingham Norman Kenvyn CEO Robert Norman COO VFS Legal:- a fresh approach and a unique solution to funding your client s disbursements

2 Disbursement Funding - Options that Could be Considered CLIENT PAYS THE COST The Client agrees to pay for the costs as they are incurred; be it from their own resources or through a specialist third party loan; (note 3 rd party loans to the client may incur unknown or unpredictable costs as interest may be deferred and then compounded for payment at conclusion). RETAINED EARNINGS (WORKING CAPITAL) On the assumption that the client is not paying the costs as incurred these will fall to the law firm if they want the case, (the cost of business), using the firm s working capital to fund these costs is clearly the most cost effective option. PARTNERS CAPITAL ACCOUNTS As cost effective for the practice as using their retained earnings although the partners may not always have sufficient liquid resources available. BANK OR OTHER LOAN On the basis that external funding is required to support the law firm s working capital requirement your bank will be the most cost effective solution, thereafter one of several secondary funders. With any facility the repayment of the borrowings should match what they are actually being used for, however the timescales when running a case(s) are unknown and unpredictable. Preferred solutions are where capital repayment is deferred with interest only payments until conclusion and settlement of the case thereby aligning, as far as is possible, the firms cash flow to the actual case. BANK OVERDRAFT This should only be used as a short term solution until a more appropriate funding method can be put in place that matches the open duration of the case. If the bank O/D is used it must be remembered that your bank will only advance to an agreed limit which may adversely impact the practice should an immediate demand on cash be required.

3 Using your Bank Overdraft an observation General Comment Careful management of a cash buffer is only prudent, firms ultimately fail through lack of cash, not lack of profit Keith Willey, London Business School, Deloittes 2012research Overdrafts often provide an essential lifeline for SMEs. Many have experienced difficulty in accessing finance from their banks in recent years and are relying on overdrafts alone to fill the cash flow stopgap. One in ten businesses in the UK have had their overdraft cut in the last 12 months with a third claiming that the reduction slowed their business down while a further 20 percent revealed that the cuts have stifled their plans for growth Close Brothers 2013Business Barometer Bank Overdrafts* - General An overdraft should be used to provide a business with immediate access to short term working capital facilities. An overdraft is usually an agreed limit for a notional period of up to 1 year and reviewed annually thereafter. An overdraft is repayable upon demand and can be withdrawn by your bank with little/no notice period. There is frequently a charge for the overdraft in terms of a fee at each annual review adding to the overall cost. Overdrafts are not designed to be used or relied upon for long term funding requirements or capital investment. Observation Overdrafts have always been one of the fundamental requirements for the majority of UK SMEs to grow their business; providing the breathing space in the cash flow for unexpected events, or opportunities, and used in conjunction with a blend of capital or fixed term funding that match the longer term needs of the business. However, the changing economic and financial environment is such that more companies are now being forced into using their overdraft, not for the safety valve in working capital, but as the primary mechanism for their long term funding, leaving the firm with a reducing safety margin for when it actually needs funds at short notice. A possible consequence being that as overdraft capacity is reduced, (through reduction or utilisation), the business can find that their trading viability can be unnecessarily threatened by unexpected events and cash flow shortfall. VFS Solution - VFS are not looking to replace your bank overdraft, but to provide a complimentary solution. DCF providing funds to cover disbursements incurred over the life of individual cases. CAF releasing funds on draft bills; bringing forward the cash flow of the business on completed cases. Monthly, interest only payments on either facility and, unlike traditional lenders, the capital is only repayable at the natural conclusion of the case and receipt of funds; it is a flexible term to match the individual case profiles. The VFS solution can enable a Practice to consider a greater workload with matched, long-term funding for each case. This will increase the firm s WIP and thereby drive income, releasing the overdraft for it s original purpose. The firm benefits from a funding facility that is specifically aligned to the case, not a mismatched short term facility. The bank benefits from the firm s improving cash flow and increasing WIP and thus a greater value to the practice. Other Banks are being forced to hold more capital against the advances they write. Bank O/D s are an easy target. The value of SME overdrafts has fallen by 16% in the past year as banks have reduced their lending. This has reduced from 20.3bn June 2011 to 18.4bn June 2012 and down to 15.4bn June Banks use an overdraft as an easy, quick and effective way of controlling their lending at times of change. *Note - if your bank holds a debenture, a specific release may be required in order to be able to utilise the facilities as offered by VFS

4 Disbursement Costs Funding ( DCF ) PROBLEM No legal aid no win no fee is a cash drain Disbursement costs for clin neg are high c. 10k / case x 30 cases x multiple fee earners Increased pressures on the cash flow ATE covers costs but uncertain timescales Banks are reluctant to increase facilities Reliance on O/D or alternative funding APPROACH SOLUTION Control no interference from the funder Choice panel of ATE partners Capital only repaid at case conclusion Costs maximum funding levels as incurred Case specific flexible, easy to reconcile Simple to administer, no external pressure No sharing of success fee when a case is won Funding facility that matches actual needs Master documentation with the law firm No CCA consumer implications Case specific schedules tailored and flexible Simple with minimal additional workload Client signs just one form (at the time of CFA) Clear identifiable funding costs per case WHY VFS? VFS are a principal not a broker A unique product tailored for lawyers Total facility, case specific but with choice Monthly statements, interest only payments Single payment date easy administration No early settlement charges or fees Releases other facilities to use as required BALANCED CASH FLOW

5 VFS Legal A Finance Company VFS Legal provides funding only for law firms. A fresh thinking approach with a unique product offering; we are a principal, advancing from our funds directly into the legal sector using two core products. Disbursements Clinical Negligence Cases VFS can provide funding for the disbursement costs that are incurred by a law firm in running a case. Our focus is the clinical negligence sector where costs can become an ongoing drain on the law firm s cash resources. Costs Advance Funding VFS can provide an immediate facility against a law firm s draft bill of costs. Benefits include immediately releasing the cash tied up in WIP back into the business, bridging the funding gap between service and settlement. Reliance on receiving interim settlement payments becomes less important whilst the negotiating position with the promisor is clearly enhanced. Our solutions include simple documentation; minimal administration, monthly statements to enable accurate monitoring and interest only payments. Repayment of the capital is made at the natural conclusion of the case or settlement of the bill, enabling the law firm to match the long term unpredictable nature of the funding requirement. Thereby enabling the law firm to match the long term unpredictability of actually receiving payment on each case directly with a matched funding solution. Our client base is growing rapidly with our facilities being well received as a common sense alternative funding solution, especially when compared to the current range of traditional funding options. We have also been mentioned in the Law Gazette of 7 th October.

6 Law Gazette 7 th October 2013 Lender seeks to plug costs funding gap for firms News Law Society Gazette Page 1 of 1 Lender seeks to plug costs funding gap for firms 07 October 2013By John Hyde (URL=/john-hyde/3670.bio) Topics: Company and commercial (URL=/Company and commercial/54.subject) A lender that provides costs funding for disbursements during ongoing cases has signed up its first law firm clients. VFS Legal says it wants to plug the gap in the market left by banks and other funders. The scheme is mostly aimed at clinical negligence cases, which can incur significant disbursement costs. The funding involves a lump sum to cover disbursements incurred over the life of a case, repaid only at its conclusion. Advertisement In the meantime, recipients pay only the monthly interest on the funds advanced. VFS declined to reveal the interest rate. VFS director Norman Kenvyn said the funding can offer firms breathing space to fund cases. He said: More companies are now being forced into using their overdraft, not for the safety valve in working capital, but as the primary mechanism for their long-term funding, leaving the firm with a reducing safety margin for when it actually needs funds at short notice. Scott-Moncrieff & Associates became the first of several firms to sign up to the scheme earlier this year. The firm s director, former Law Society president Lucy Scott-Moncrieff (pictured), said: Since legal aid was abolished for most [clinical negligence] cases, there have been concerns that some smaller firms might be unwilling to take on complex cases requiring expensive and front-loaded experts reports, even where ATE insurance is available, as this will adversely affect their cashflow. This scheme solves the problem and should, therefore, improve access to justice. Printed from -

7 Why use VFS as your funding partner? VFS is different from most other funders. We are not a bank; we raise our funds from investors who understand that many law firms are often overlooked due to their profession, but they also suffer from cash flow constraints like most SMEs. VFS focuses solely on providing facilities to the legal sector. We have taken the time to understand the issues that a modern law firm has to address, including the changing reforms that have adversely impacted many practices, and we have created a number of innovative, yet simple, cost effective solutions that improve the cash flow for the law firm. DISBURSEMENT COSTS FUNDING The VFS Disbursement Costs Funding solution, ( DCF ), recognises some of the problems that a law firm may encounter in actually being able to fund certain types of PI, clinical, medical and general negligence or litigation cases. The ongoing disbursements that are incurred on each case being progressed lead to a continual drain on a law firm s cash resources. These costs frequently run into tens of thousands of pounds per case with no fixed end date for repayment; and when numerous cases are being run simultaneously the total amounts involved become extreme, and sometimes problematical for the law firm if funding has not been specifically provided for. VFS SOLUTION KEY BENEFITS case specific facility to cover the disbursements working with a panel of respected ATE providers reimbursing the costs as incurred and as required monthly interest payable only on funds advanced flexible; no fixed term, repaid when case is concluded parallel facilities enabling multiple cases to be run limits increasing in line with your case load and we can fund the profit costs incurred at judgment VFS Legal: a fresh thinking funder, a specialist lender to the legal sector. We are not seeking to provide a replacement for your bank facilities but a complimentary solution that delivers the cash flow and funding that is required to develop the Practice. VFS will provide the law firm with a high percentage of the costs that are due to them once a draft bill has been served. Our core product, the VFS Costs Advance Facility ( CAF ) has taken the growing problem of how long it can take for a law firm to negotiate and actually collect their agreed costs from a case that has already been won. The problem? COSTS ADVANCE FACILITY the case has been won but you have not been paid negotiating the draft bill can be a protracted affair interim payments are getting harder to obtain third party insurers increasingly drawing out payment - - using the delay to negotiate a reduced settlement slow payment can restrict new business development VFS SOLUTION KEY BENEFITS an immediate cash advance against the draft bill fast turnaround; funds often paid the same day flexible, no fixed term; repaid when then bill is settled strengthens negotiating position & settlement levels funds can be used for any purpose unique structure, quick, efficient, simple, effective COST a one-off cost to put the facility in place a single doc fee at each drawdown (no renewal fee) low, monthly interest only payments until settled

8 PRESENTATION TO:- The Society of Clinical Injury Lawyers DISBURSEMENT FUNDING TURNOVER IS VANITY PROFIT IS SANITY CASH FLOW IS KING VFS Legal A fresh thinking funder. A specialist lender to the legal sector.